UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-Q (Mark
  One)xQuarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
for the
quarterly period ended June 30, 2007.OroTransition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
for the
transition period

from                                             toCommission
File Number 000-50266 TRINITY CAPITAL CORPORATION(Exact name of registrant as
specified
in its charter) New Mexico

85-0242376(State
  of incorporation)

(I.R.S.
  Employer Identification Number) 1200 Trinity Drive, Los Alamos, New Mexico 87544
(Address of principal executive offices) (505) 662-5171
Telephone number Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o Indicate
by check mark whether the registrant is a large accelerated filed, an
accelerated filer, or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
one) Large
  Accelerated Filero
Accelerated
  Filer x
Non-Accelerated
  Filer o Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act).o Yesx No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuers classes of common stock, as of the latest
practicable date: 6,509,459 shares of common stock, no par value, outstanding
as of July 25, 2007.    TRINITY CAPITAL CORPORATION AND
SUBSIDIARIES

PART I. FINANCIAL
  INFORMATIONItem 1.
Financial StatementsItem 2.
Managements Discussion and Analysis of Financial Condition
and
  Results of OperationsItem 3.
Quantitative and Qualitative Disclosures About Market
RiskItem 4.
Controls and ProceduresPART II. OTHER INFORMATIONItem 1.
Legal ProceedingsItem 1A.
Risk FactorsItem 2.
Unregistered Sales of Equity Securities and Use of
ProceedsItem 3.
Defaults Upon Senior SecuritiesItem 4.
Submission of Matters to a Vote of Securities
HoldersItem 5.
Other InformationItem 6.
ExhibitsSIGNATURESCERTIFICATIONSPART I  FINANCIAL INFORMATION

Item
1. Financial Statements

TRINITY CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2007 and December 31, 2006
(Amounts in thousands, except share data)

June 30, 2007

December 31,
  2006(Unaudited)ASSETSCash and due from
banks

$
25,515

$
23,292Interest-bearing deposits with
banks


36,987


49,598Federal funds sold and
securities purchased under resell agreements


500


700Cash and
cash equivalents

$
63,002


73,590Investment securities available
for sale


99,405


87,950Investment securities held to
maturity, at amortized cost (fair value
  of $10,773 at June 30, 2007 and $10,961 at December 31,
  2006)


10,774


10,968Other investments


7,232


7,936Loans (net of allowance for
loan losses of $12,837 at June 30, 2007
  and $12,167 at December 31, 2006)


1,162,639


1,119,557Loans held for sale


6,957


10,349Premises and equipment,
net


24,064


24,255Leased property under capital
leases, net


2,211


2,211Accrued interest
receivable


9,180


9,465Mortgage servicing rights,
net


8,690


9,115Other real estate
owned


1,184


165Other assets


4,917


3,718Total
assets

$
1,400,255

$
1,359,279LIABILITIES AND
STOCKHOLDERS EQUITYLiabilitiesDeposits:Noninterest-bearing
    
    $
    95,215
    
    $
    89,356Interest-bearing
    
    
    1,106,479
    
    
    1,073,385Total
deposits
    
    
    1,201,694
    
    
    1,162,741Short-term
        borrowings
    
    
    
    
    
    681Long-term
borrowings
    
    
    63,586
    
    
    63,603Long-term
        capital lease obligations
    
    
    2,211
    
    
    2,211Junior
subordinated debt owed to unconsolidated trusts
    
    
    37,116
    
    
    37,116Borrowings
        made by Employee Stock Ownership Plan (ESOP) to outside parties
    
    
    271
    
    
    743Accrued
interest payable
    
    
    5,811
    
    
    5,773Other
        liabilities
    
    
    5,226
    
    
    5,733Total
liabilities
    
    
    1,315,915
    
    
    1,278,601Stock
        owned by Employee Stock Ownership Plan (ESOP) participants; 635,012 shares
        and 629,066 shares at June 30, 2007 and December 31, 2006, respectively,
        at fair value; net of unearned ESOP shares of 17,627 and 44,200 shares
        at June 30, 2007 and December 31, 2006, respectively, at historical cost
    
    
    17,847
    
    
    17,438Commitments and contingencies
(Note 10)(Continued on following page)

1

TRINITY CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2007 and December 31, 2006
(Amounts in thousands, except share data)
(Continued from prior page)

June 30, 2007

December 31,
  2006(Unaudited)Stockholders
equityCommon stock,
no par, authorized 20,000,000 shares; issued 6,856,800
  shares, shares outstanding 6,524,346 and 6,532,898 at June 30, 2007 and
  December 31, 2006, respectively

$
6,836

$
6,836Additional
paid-in capital


1,350


1,067Retained
earnings


66,971


62,939Accumulated
other comprehensive (loss)


(211
)

(158
)Total
stockholders equity before treasury stock


74,946


70,684Treasury stock, at cost,
314,827 shares and 279,702 shares at June 30, 2007 and December 31, 2006, respectively


(8,453
)

(7,444
)Total
stockholders equity


66,493


63,240Total
liabilities and stockholders equity

$
1,400,255

$
1,359,279The accompanying notes are an integral part of these unaudited
consolidated financial statements.

2

TRINITY CAPITAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three and Six Months Ended June 30, 2007 and 2006
(Amounts in thousands except share and per share data)
(Unaudited)

Three
  Months Ended

Six
  Months EndedJune
  30, 2007

June
  30, 2006

June
  30, 2007

June
  30, 2006Interest income:Loans,
including fees

$
22,021

$
19,712

$
44,163

$
37,615Investment
securities:Taxable


873


909


1,808


1,900Nontaxable


283


199


565


402Federal funds
sold


17


2


37


5Other
interest-bearing deposits


452


21


884


153Investment in
unconsolidated trusts


23


22


46


44Total
interest income


23,669


20,865


47,503


40,119Interest
expense:Deposits


10,422


7,448


20,677


13,990Short-term
borrowings


6


281


19


419Long-term
borrowings


611


628


1,223


1,308Junior
subordinated debt owed to unconsolidated trusts


765


736


1,527


1,464Total
interest expense


11,804


9,093


23,446


17,181Net interest
income


11,865


11,772


24,057


22,938Provision for loan
losses


1,050


900


2,100


2,800Net
interest income after provision for loan losses


10,815


10,872


21,957


20,138Other income:Mortgage loan
servicing fees


629


667


1,252


1,307Loan and other
fees


965


812


1,693


1,521Service
charges on deposits


443


397


823


778Gain on sale
of loans


528


591


937


891Other
operating income


310


436


598


8022,875


2,903


5,303


5,299Other expenses:Salaries and
employee benefits


4,559


4,423


9,204


8,848Occupancy


934


828


1,916


1,685Data
processing


404


427


851


895Marketing


554


504


1,040


941Amortization
and valuation of mortgage servicing rights


362


471


1,096


1,022Supplies


349


149


534


350(Gain) loss on
sale of other real estate owned


(8)


34


(30)


232Postage


155


146


330


303Other


1,286


1,351


2,390


2,4508,595


8,333


17,331


16,726Income
before income taxes


5,095


5,442


9,929


8,711Income taxes


1,831


2,100


3,608


3,268Net
income

$
3,264

$
3,342

$
6,321

$
5,443Basic earnings per common
share

$
0.50

$
0.51

$
0.97

$
0.83Diluted earnings per common
share

$
0.50

$
0.50

$
0.96

$
0.82The accompanying notes are an integral part of these unaudited
consolidated financial statements.

3

TRINITY CAPITAL CORPORATION &
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2007 and 2006
(Amounts in thousands)
(Unaudited)

Six
  Months EndedJune
  30, 2007

June
  30, 2006Cash Flows From Operating
ActivitiesNet income


$
6,321


$
5,443Adjustments to reconcile net
income to net
  cash provided by operating activities:Depreciation and
amortization



1,143



1,267Net amortization of:Mortgage servicing
rights



1,414



1,356Premiums and discounts on
investment
  securities, net



(309
)


(109
)Junior subordinated debt owed
to
  unconsolidated trusts issuance costs



7



10Provision for loan
losses



2,100



2,800Recovery of mortgage servicing
rights



(319
)


(334
)Loss on disposal of premises
and equipment



4



14Federal Home Loan Bank (FHLB)
stock
  dividends received



(120
)


(126
)Loss on venture capital
investments



72



Gain on sale of loans



(937
)


(891
)Loss on disposal of other real
estate owned







(15
)Write-down of value of other
real estate
  owned







40Increase in other
assets



(781
)


(2
)Decrease in other
liabilities



(562
)


(402
)Release of Employee Stock
Ownership Plan (ESOP)
  shares



626



633Stock options and stock
appreciation rights
  expensed



119



Tax benefit recognized for
exercise of
  stock options



(57
)


(171
)Net cash provided by
operating activities
  before originations and gross sales of loans



8,721



9,513Gross sales of loans held for
sale



61,544



76,883Origination of loans held for
sale



(57,885
)


(75,304
)Net cash provided by
operating activities



12,380



11,092Cash Flows From Investing
ActivitiesProceeds from maturities and
paydowns of
  investment securities, available for sale



41,440



12,490Proceeds from maturities and
paydowns of
  investment securities, held to maturity



192



11,311Proceeds from maturities and
paydowns of
  investment securities, other



1,072



Purchase of investment
securities available
  for sale



(52,671
)


Purchase of investment
securities other



(320
)


(709
)Proceeds from sale of other
real estate
  owned







60Loans funded, net of
repayments



(46,201
)


(81,092
)Purchases of premises and
equipment



(956
)


(789
)Net cash (used in) investing
activities



(57,444
)


(58,729
)(Continued on following page)

4

TRINITY CAPITAL CORPORATION &
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2007 and 2006
(Amounts in thousands)
(Unaudited)
(Continued from prior page)

Six
  Months EndedJune
  30, 2007

June
  30, 2006Cash Flows From Financing
ActivitiesNet increase (decrease) in
demand deposits,
  NOW accounts and savings accounts


$
49,332


$
(671
)Net (decrease) increase in time
deposits



(10,379
)


2,911Proceeds from issuances of
borrowings







26,700Repayment of
borrowings



(698
)


(3,970
)Repayment of ESOP
debt



(472
)


(471
)Purchase of treasury
stock



(1,295
)


(840
)Issuance of common stock for
stock option
  plan



233



613Dividend payments



(2,302
)


(2,256
)Tax benefit recognized for
exercise of
  stock options



57



171Net cash provided by
financing activities



34,476



22,187Net increase in cash and
cash equivalents



(10,588
)


(25,450
)Cash and cash
equivalents:Beginning of period



73,590



54,682End of period


$
63,002


$
29,232Supplemental Disclosures of
Cash Flow
  InformationCash payments for:Interest


$
23,408


$
17,031Income taxes



2,610



2,549Non-cash investing and financing
  activities:Transfers from loans to other
real estate
  owned



1,019



Dividends declared, not yet
paid



2,290



2,252Change in unrealized gain on
investment
  securities, net of taxes



(192
)


(192
)The
accompanying notes are an integral part of these unaudited consolidated
financial statements.

5

TRINITY CAPITAL CORPORATION &
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Basis of Presentation

The
accompanying unaudited consolidated financial statements include the
consolidated balances and results of operations of Trinity Capital Corporation
(Trinity) and its wholly owned subsidiaries: Los Alamos National Bank (the
Bank), Title Guaranty & Insurance Company (Title Guaranty), TCC
Appraisal Services Corporation (TCC Appraisals), TCC Advisors Corporation
(TCC Advisors) and TCC Funds, collectively referred to as the Company.
Trinity Capital Trust I (Trust I), Trinity Capital Trust III (Trust
III), Trinity Capital Trust IV (Trust IV) and Trinity Capital Trust V
(Trust V), collectively referred to as the Trusts, are trust subsidiaries
of Trinity but are not consolidated in these financial statements (see
Consolidation accounting policy below). Trinity Capital Trust II (Trust II)
was terminated on December 12, 2006. The business activities of the Company
consist solely of the operations of its wholly owned subsidiaries. All
significant inter-company balances and transactions have been eliminated in
consolidation. In the opinion of management,
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the financial position, results of operations and cash
flows for the interim periods have been made. The results of operations for the
three and six months ended June 30, 2007 are not necessarily indicative of the
results to be expected for the entire fiscal year.

The
unaudited consolidated interim financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
of America and industry practice. Certain information in footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America and
industry practice has been condensed or omitted pursuant to rules and
regulations of the Securities and Exchange Commission. These financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Companys December 31, 2006
audited financial statements filed on Form 10-K.

The
consolidated financial statements include the accounts of the Company. The
accounting and reporting policies of the Company conform to accounting
principles generally accepted in the United States of America and general
practices within the financial services industry. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the year. Actual results could
differ from those estimates. Areas involving the use of managements estimates
and assumptions, and which are more susceptible to change in the near term
include the allowance for loan losses and initial recording and subsequent
valuation for impairment of mortgage servicing rights.

Certain
items have been reclassified from prior period presentations in conformity with
the current classification.

Note 2. Comprehensive Income

Comprehensive
income includes net income, as well as the change in net unrealized gain on
investment securities available for sale, net of tax. Comprehensive income was
$3.2 million for both of the three month periods ended June 30, 2007 and June
30, 2006, and $6.3 million and $5.3 million for the six month periods ended
June 30, 2007 and June 30, 2006, respectively.

6

Note 3. Earnings Per Share Data

The
following table sets forth the computation of basic and diluted earnings per
share for the periods indicated:

Three
  Months EndedJune 30,

Six
  Months EndedJune 30,2007

2006

2007

2006(Unaudited;
  in thousands, except share and per share data)Net income

$
3,264

$
3,342

$
6,321

$
5,443Weighted average common shares
issued


6,856,800


6,856,800


6,856,800


6,856,800LESS: Weighted average treasury
stock
  shares


(310,442
)

(229,877
)

(299,567
)

(227,088
)LESS: Weighted average unearned
Employee
  Stock Ownership Plan (ESOP) stock shares


(17,597
)

(45,666
)

(20,284
)

(48,379
)Weighted average common shares
outstanding,
  net


6,528,761


6,581,257


6,536,949


6,581,333Basic earnings per common
share

$
0.50

$
0.51

$
0.97

$
0.83Weighted average dilutive
shares from stock
  option plan


31,000


37,457


37,585


37,865Weighted average common shares
outstanding
  including dilutive shares


6,559,761


6,618,714


6,574,534


6,619,198Diluted earnings per common
share

$
0.50

$
0.50

$
0.96

$
0.82Certain
stock options were not included in the above calculation, pursuant to FAS 128,
as these stock options would have an anti-dilutive effect at current market
prices. The total number of shares excluded was 182,000 as of June 30, 2007.

Note 4. Recent Accounting Pronouncements and
Regulatory Developments

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.
This Statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. This Statement applies under other
accounting pronouncements that require or permit fair value measurements, the
Board having previously concluded in those accounting pronouncements that fair
value is the relevant measurement attribute. Accordingly, this Statement does
not require any new fair value measurements. However, for some entities, the
application of this Statement will change current practice. This Statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Earlier
application is encouraged, provided that the reporting entity has not yet
issued financial statements for that fiscal year, including financial
statements for an interim period within that fiscal year. Management does not
believe that this statement will have a material impact on the Companys
financial statements.

In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, which provides companies with an
option to report selected financial assets and liabilities at fair value. The
Standards objective is to reduce both complexity in accounting for financial
instruments and the volatility in earnings caused by measuring related assets
and liabilities differently. The standard requires companies to provide
additional information that will help investors and other users of financial
statements to more easily understand the effect of a companys choice to use
fair value on its earnings. It also requires entities to display the fair value
of those assets and liabilities for which a company has chosen to use fair
value on the face of the balance sheet. The new Statement does not eliminate
disclosure requirements included in other accounting standards, including
requirements for disclosures about fair value measurements included in FASB
Statements No. 157, Fair Value Measurements,
and No. 107, Disclosures about Fair Value of
Financial Instruments.This Statement is effective as of the
beginning of an entitys first fiscal year beginning after November 15, 2007.
Early adoption is permitted as of the beginning of the previous fiscal year
provided that the entity makes that choice in the first 120 days of that fiscal
year and also elects to apply the provisions of FASB Statement No. 157.
Management does not believe that this statement will have a material impact on
the Companys financial statements.

Note 5. Stock Option Plan

Trinity
has two stock incentive plans created for the benefit of key management and
selected employees, the 1998 Stock Option Plan and the Trinity Capital
Corporation 2005 Stock Incentive Plan (the 2005 Plan). Under the 1998 Stock
Option Plan, 400,000 shares (as adjusted for the stock split of
December 19, 2002) from shares held in treasury or authorized but unissued
common stock are reserved for granting options. Under the 2005 Plan, 500,000
shares from shares held in treasury or authorized but unissued common stock are
reserved for granting stock-based incentive awards. Both of these plans were
approved by Trinitys shareholders. The Board of Directors determines vesting
and pricing of the awards. All stock options granted through December 31,
2005 vest over three years and must be exercised within ten years of the date
of grant. Stock appreciation rights granted after December 31, 2005 mature upon
their fifth anniversary of grant and their value will be paid in stock.

7

Trinitys
stock incentive awards have been priced at or above the market value of the
stock based on the last reported sale price as of the date of grant which is
also the date of approval, with the exception of the July 1998 stock option
grant which was granted at $0.25 below the last reported sale price and the
January 1, 2006 stock appreciation right grant which was approved on December
15, 2005 and granted at the closing market price as of December 31, 2005.
Trinity set the SARs grant date for 2005 on a date other than the approval date
due to accounting rule changes that took affect on January 1, 2006 that were
advantageous to Trinity. Trinity has awarded all stock option and SARs based on
the last reported market price of Trinitys stock on the option grant date,
with the exception of the July 1998 and January 2006 grants as described above.

Effective
January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment, which
is an Amendment of FASB Statement Nos. 123 and 95. The Company adopted this
standard using the modified prospective transaction method. Prior to the
adoption of SFAS 123(R), the Company measured stock-based compensation cost in
accordance with the methods prescribed in Accounting Principles Board (APB) Opinion
No. 25, Accounting
for Stock Issued to Employees. Accordingly, no compensation cost was
recognized for options granted and vested before January 1, 2006.

Under
the provisions of SFAS 123(R), the Company is required to recognize
compensation expense for share-based compensation that vest after adoption of
the new standard. The Company uses the Black-Scholes model to value the stock
incentives on the date of the grant, and recognizes this expense over the
remaining vesting term for the stock incentives. Key assumptions used in this
valuation method (detailed below) are the volatility of the Trinitys stock
price, a risk-free rate of return (using the U.S. Treasury yield curve) based
on the expected term from grant date to exercise date and an annual dividend
rate based upon the current market price. Expected term from grant date is
based upon the historical time from grant to exercise experienced by the
Company.

The
following table details the assumptions used in by the Black-Scholes model for
valuing share-based compensation granted during the respective periods. There
were no options granted during the three months ending June 30, 2007 or June
30, 2006.

Three Months Ended June 30,

Six Months Ended June 30,2007

2006

2007

2006Stock price
  volatility





12.82
%
14.12
%Risk-free
  rate





4.70
%
4.35
%Expected
  dividends





2.40
%
2.29
%Expected
  term (in years)





5

5A
summary of stock option and stock appreciation right activity under the plans
as of June 30, 2007, and changes during the first six months of the year is
presented below:

Shares

Weighted-Average
  Exercise Price

Weighted-Average
  Remaining Contractual
  Term, in years

Aggregate Intrinsic
  Value (in thousands)Outstanding
  at January 1, 2007

357,408


$
25.92Granted

51,000



28.75Exercised

(11,013
)


16.00Forfeited or
  expired





Outstanding
  at June 30, 2007

397,395


$
26.56


5.14


$
1,730Exercisable
  at June 30, 2007

228,562


$
24.92


5.39


$
963Steve
W. Wells exercised 11,013 non-qualified stock options at $16.00 per share during
the three months ended June 30, 2007.

The
weighted-average grant-date fair value of options granted during the six months
ending June 30, 2007 and June 30, 2006 was $4.32 and $4.33, respectively. The
total intrinsic value of options exercised during the six months ended June 30,
2007 and June 30, 2006 was $64 thousand and $46 thousand, respectively.

As
of June 30, 2007, there was $570 thousand of total unrecognized compensation
cost related to nonvested share-based compensation granted under the plans.
That cost is expected to be recognized over a weighted-average vesting period
of 3.5 years. There were no shares vested during the six months ending June 30,
2007. However, shares that will vest in August and December 2007 have been ratably
expensed in the amount of $62 thousand in the first six months of 2007. In
addition, the Company expensed $57 thousand for stock appreciation rights that
will vest in 2011 and 2012.

8

Note 6. Short Term Borrowings

The
Company had Federal Home Loan Bank advances with maturity dates of less than
one year of $0 and $681 thousand as of June 30, 2007 and December 31,
2006, respectively.

Note 7. Long Term Borrowings

The
Company had Federal Home Loan Bank advances with maturity dates greater than
one year of $63.6 million as of June 30, 2007 and December 31, 2006. As of
June 30, 2007, the advances had fixed interest rates ranging from 3.22% to
6.34%.

Note 8. Long-term Capital Lease Obligations

The
Company is leasing land in Santa Fe with the intention of building a future
branch on the site. The lease, which was entered into in December 2006 and
expires in 2014, contains an option to purchase the land at a set price at the
termination of the initial term of the lease. This lease is classified as a
capital lease. Lease payments for the three months ended June 30, 2007 and 2006
was $48 thousand and $0, respectively. Lease payments for the six months ended
June 30, 2007 and 2006 was $94 thousand and $0, respectively.

Note 9. Junior Subordinated
Debt Owed to Unconsolidated Trusts

The
following table presents details on the junior subordinated debt owed to
unconsolidated trusts as of June 30, 2007:

Trust I

Trust
  III

Trust
  IV

Trust V(Dollars
        in thousands)Date of issue


March 23, 2000


May 11, 2004


June 29, 2005


September 21, 2006Amount
        of trust preferred 
        securities issued

$
$10,000

$
6,000

$
10,000

$
10,000Rate
        on trust preferred
        securities
    

10.875
    %

8.06% (variable
    )

6.88
    %

6.83
    %Maturity


March 8, 2030


September 8, 2034


November 23, 2035


December 15, 2036Date of first
redemption


March 8, 2010


September 8, 2009


August 23, 2010


September 15, 2011Common
        equity securities
        issued

$
310

$
186

$
310

$
310Junior
        subordinated 
        deferrable interest
        debentures owed

$
10,310

$
6,186

$
10,310

$
10,310Rate
        on junior subordinated 
        deferrable interest 
        debentures



10.875
    %

8.06% (variable
    )

6.88
    %

6.83
    %On
the dates of issue indicated above, the Trusts, being Delaware statutory
business trusts, issued trust preferred securities (the trust preferred
securities) in the amount and at the rate indicated above. These securities
represent preferred beneficial interests in the assets of the Trusts. The trust
preferred securities will mature on the dates indicated, and are redeemable in
whole or in part at the option of Trinity at any time after the date of first
redemption indicated above, with the approval of the Federal Reserve Board and
in whole at any time upon the occurrence of certain events affecting their tax
or regulatory capital treatment. The Trusts also issued common equity
securities to Trinity in the amounts indicated above. The Trusts used the
proceeds of the offering of the trust preferred securities to purchase junior
subordinated deferrable interest debentures (the debentures) issued by
Trinity, which have terms substantially similar to the trust preferred
securities. Trinity has the right to defer payments of interest on the
debentures at any time or from time to time for a period of up to ten
consecutive semi-annual periods with respect to each interest payment deferred.
Under the terms of the debentures, under certain circumstances of default or if
Trinity has elected to defer interest on the debentures, Trinity may not, with
certain exceptions, declare or pay any dividends or distributions on its
capital stock or purchase or acquire any of its capital stock. Trinity used the
majority of the proceeds from the sale of the debentures to add to Tier 1 or
Tier 2 capital in order to support its growth and to purchase treasury stock.

Trinity
owns all of the outstanding common securities of the Trusts. The Trusts are
considered variable interest entities (VIEs) under Financial Accounting Standards Board Interpretation (FIN) No. 46,
Consolidation of Variable Interest Entities, an interpretation of Accounting
Research Bulletin No. 51, as revised. Prior to FIN 46, VIEs
were generally consolidated by an enterprise when the enterprise had a
controlling financial interest through ownership of a majority of voting
interest in the entity. Under FIN 46, a VIE should be consolidated by its
primary beneficiary. The Company implemented FIN 46 during the fourth quarter
of 2003. Because Trinity is not the primary beneficiary of the Trusts, the
financial statements of the Trusts are no longer included in the consolidated
financial statements of the Company. The Companys prior financial statements
have been reclassified to de-consolidate the Companys investment in the
Trusts.

In
March 2005, the Board of Governors of the Federal Reserve System issued a
final rule allowing bank holding companies to continue to include
qualifying trust preferred securities in their Tier 1 Capital for regulatory
capital purposes, subject to a 25%

9

limitation to
all core (Tier I) capital elements, net of goodwill less any associated
deferred tax liability. The final rule provides a five-year transition period,
ending March 31, 2009, for application of the aforementioned quantitative
limitation. As of June 30, 2007, 78.1% of the trust preferred securities noted
in the table above qualified as Tier I capital and 21.9% qualified as Tier 2
capital under the final rule adopted in March 2005.

Payments
of distributions on the trust preferred securities and payments on redemption
of the trust preferred securities are guaranteed by Trinity on a limited basis.
Trinity also entered into an agreement as to expenses and liabilities with the
Trusts pursuant to which it agreed, on a subordinated basis, to pay any costs,
expenses or liabilities of the Trusts other than those arising under the trust
preferred securities. The obligations of Trinity under the junior subordinated
debentures, the related indenture, the trust agreement establishing the Trusts,
the guarantee and the agreement as to expenses and liabilities, in the
aggregate, constitute a full and unconditional guarantee by Trinity of the Trusts
obligations under the trust preferred securities.

Issuance
costs of $406 thousand related to Trust I and Trust III were deferred and are
being amortized over the period until mandatory redemption of the securities in
March 2030 and September 2034, respectively. During the three months periods
ended June 30, 2007 and 2006, respectively, $4 thousand and $5 thousand of
these issuance costs were amortized. During the six months periods ended June
30, 2007 and 2006, respectively, $7 thousand and $10 thousand of these issuance
costs were amortized. Unamortized issuance costs were $317 thousand and $325
thousand at March 31, 2007 and December 31, 2006, respectively. There were no
issuance costs associated with the other trust preferred security issues.

Dividends
accrued and unpaid to securities holders totaled $488 thousand on June 30, 2007
and December 31, 2006.

Note 10. Commitments, Contingencies and
Off-Balance Sheet Activities

Credit-related
financial instruments: The
Company is a party to credit-related commitments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These credit-related commitments include commitments to extend credit, standby
letters of credit and commercial letters of credit. Such credit-related
commitments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated balance sheets.

The
Companys exposure to credit loss is represented by the contractual amount of
these credit-related commitments. The Company follows the same credit policies
in making credit-related commitments as it does for on-balance-sheet
instruments.

At
June 30, 2007 and December 31, 2006, the following credit-related commitments
were outstanding:

Contract
  AmountJune
  30,
  2007

December
  31,
  2006(In
  thousands)Unfunded
  commitments under lines of credit
    
    $
    209,656
    
    $
    192,252Commercial
  and standby letters of credit


24,982


31,100Commitments
to extend credit under lines of credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require a payment of a fee. The commitments for lines of credit may
expire without being drawn upon. Therefore, the total commitment amounts do not
necessarily represent future cash requirements. The amount of collateral
obtained, if it is deemed necessary by the Company, is based on managements
credit evaluation of the customer. Unfunded commitments under commercial lines
of credit, revolving credit lines and overdraft protection agreements are
commitments for possible future extensions of credit to existing customers.
Overdraft protection agreements are uncollateralized, but most other unfunded
commitments under lines of credit have collateral. These unfunded lines of
credit usually do not contain a specified maturity date and may not necessarily
be drawn upon to the total extent to which the Company is committed.

Commercial
and standby letters of credit are conditional credit-related commitments issued
by the Company to guarantee the performance of a customer to a third party.
Letters of credit are primarily issued to support public and private borrowing
arrangements. Essentially all letters of credit issued have expiration dates
within one year. The credit risk involved in issuing letters of credit is the
same as that involved in extending loans to customers. The Company holds
collateral supporting those credit-related commitments, if deemed necessary. In
the event the customer does not perform in accordance with the terms of the
agreement with the third party, the Company would be required to fund the
credit-related commitment. The maximum potential amount of future payments the
Company could be required to make is represented by the contractual amount
shown in the summary above. If the credit-related commitment is funded, the
Company would be entitled to seek recovery from the customer. At June 30, 2007
and December 31, 2006, no amounts have been recorded as liabilities for the
Companys potential obligations under these credit-related commitments. The
fair value of these credit-related commitments is approximately equal to the
fees collected when granting these

10

letters of
credit. These fees collected were $37 thousand and $66 thousand as of June 30,
2007 and December 31, 2006, respectively, and are included in other
liabilities on the Companys balance sheet.

Concentrations
of credit risk: The majority of the loans, commitments
to extend credit, and standby letters of credit have been granted to customers
in Los Alamos, Santa Fe and surrounding communities. Although the Company has a
diversified loan portfolio, a substantial portion of its loans are made to
businesses and individuals associated with, or employed by, Los Alamos National
Laboratory (the Laboratory) as further discussed within Item 1A of Part I of
Trinitys Form 10-K for the year ended December 31, 2006. The ability of such
borrowers to honor their contracts is predominately dependent upon the
continued operation and funding of the Laboratory. Investments in securities
issued by states and political subdivisions involve governmental entities
within the state of New Mexico. The distribution of commitments to extend
credit approximates the distribution of loans outstanding. Standby letters of
credit were granted primarily to commercial borrowers.

Note 11. Litigation

Trinity,
the Bank, Title Guaranty, TCC Appraisals, TCC Advisors and TCC Funds are not
involved in any pending legal proceedings, other than routine legal proceedings
occurring in the normal course of business and those otherwise specifically
stated herein, which, in the opinion of management, in the aggregate, are
material to the Companys consolidated financial condition.

11

Item 2. Managements Discussion and Analysis
of Financial Condition and Results of Operations

This discussion
is intended to focus on certain
financial information regarding the Company and is written to provide the
reader with a more thorough understanding of its financial statements. The
following discussion and analysis of the Companys financial position and
results of operations should be read in conjunction with the information set forth
in Item 3, Quantitative and Qualitative Disclosures about Market Risk and the
annual audited consolidated financial statements filed on Form 10-K for the
year ended December 31, 2006.

This
report contains certain financial information determined by methods other than
in accordance with accounting principles generally accepted in the United
States of America (GAAP). These measures include net interest margin on a fully
tax-equivalent basis and net interest income on a fully tax-equivalent basis.
Management uses these non-GAAP measures in its analysis of the Companys
performance. The tax-equivalent adjustment to net interest margin and net
interest income recognizes the income tax savings when comparing taxable and
tax-exempt assets and adjusting for federal and state exemption of interest
income and certain other permanent income tax differences. Management believes
that it is a standard practice in the banking industry to present net interest
income and net interest margin on a fully tax-equivalent basis, and accordingly
believes the presentation of the financial measures may be useful for peer
comparison purposes. This disclosure should not be viewed as a substitute for
the results determined to be in accordance with GAAP, nor is it necessarily
comparable to non-GAAP performance measures that may be presented by other
companies. Reconciliations of net interest income on a fully tax-equivalent
basis to net interest income and net interest margin on a fully tax-equivalent
basis to net interest margin are contained in tables under Net Interest
Income.

Special Note Concerning Forward-Looking
Statements

This
document (including information incorporated by reference) contains, and future
oral and written statements of the Company and its management may contain,
forward-looking statements, within the meaning of such term in the Private
Securities Litigation Reform Act of 1995, with respect to the financial
condition, results of operations, plans, objectives, future performance and
business of the Company. Forward-looking statements, which may be based upon
beliefs, expectations and assumptions of the Companys management and on
information currently available to management, are generally identifiable by
the use of words such as believe, expect, anticipate, plan, intend,
estimate, may, will, would, could, should or other similar
expressions. Additionally, all statements in this document, including
forward-looking statements, speak only as of the date they are made, and the
Company undertakes no obligation to update any statement in light of new
information or future events.

The
Companys ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. The factors, which could have a material
adverse effect on the operations and future prospects of the Company, are
detailed in the Risk Factors section included under Item 1A of Part I of the
Companys Form 10-K for the year ended December 31, 2006. In addition to the
risk factors described in that section, there are other factors that may impact
any public company, including the Company, which could have a material adverse
effect on the operations and future prospects of the Company. These additional
factors include, but are not limited to, the following:


The economic
  impact of past and any future terrorist attacks, acts of war or threats
  thereof and the response of the United States to any such threats and
  attacks;
The costs,
  effects and outcomes of existing or future litigation;
Consumer
  spending and savings habits which may change in a manner that affects the
  Companys business adversely;
Changes in
  accounting policies and practices, as may be adopted by state and federal
  regulatory agencies, the Financial Accounting Standards Board, the Securities
  and Exchange Commission and the Public Company Accounting Oversight Board;
  and
The ability
  of the Company to manage the risks associated with the foregoing as well as
  anticipated.These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.

12

Critical Accounting Policies

Allowance
for Loan Losses: The allowance for loan losses is
that amount which, in managements judgment, is considered appropriate to
provide for probable losses in the loan portfolio. In analyzing the adequacy of
the allowance for loan losses, management uses a comprehensive loan grading
system to determine risk potential in the portfolio, and considers the results
of periodic internal and external loan reviews. Historical loss experience
factors and specific reserves for impaired loans, combined with other
considerations, such as delinquency, non-accrual, trends on criticized and
classified loans, economic conditions, concentrations of credit risk, and
experience and abilities of lending personnel, are also considered in analyzing
the adequacy of the allowance. Management uses a systematic methodology, which
is applied at least quarterly, to determine the amount of allowance for loan
losses and the resultant provisions for loan losses it considers adequate to
provide for anticipated loan losses. This methodology includes a periodic
detailed analysis of the loan portfolio, a systematic loan grading system and a
periodic review of the summary of the allowance for loan and lease loss
balance. In the event that different assumptions or conditions were to prevail,
and depending upon the severity of such changes, the possibility of materially
different financial condition or results of operations is a reasonable
likelihood.

Management
reviewed the methodology used in the allowance for loan losses adequacy
analysis in 2006. After a thorough examination, management refined the process
used in two ways: (1) by moving from a pure historical loss to a migration
analysis for determining inherent loss in the current loan portfolio and (2) by
quantifying the qualitative adjustments used to reflect the risks associated
with certain risk factors that are not reflected in the migration analysis or
specific identification of impaired loans.

Accordingly,
three methods are used to evaluate the adequacy of the allowance for loan
losses: (1) specific identification, based on managements assessment of loans
in the Banks portfolio and the probability that a charge-off will occur in the
upcoming quarter, per SFAS 114; (2) losses inherent in the loan portfolio
besides those specifically identified, based upon a migration analysis of the
percentage of loans currently performing that have inherent losses, as set
forth in SFAS 5; and (3) qualitative adjustments based on managements
assessment of certain risks such as delinquency trends, watch-list and
classified trends, changes in concentrations, economic trends, industry trends,
non-accrual trends, exceptions and loan-to-value guidelines, management and
staff changes and policy or procedure changes (as set forth in SFAS 5).

While
management uses the best information available to make its evaluation, future
adjustments to the allowance may be necessary if there are significant changes
in economic conditions. In addition, as an integral part of their examination
process regulatory agencies periodically review the Banks allowance for loan
losses and may require us to make additions to the allowance based on their
evaluation of information available at the time of their examinations.

Mortgage
Servicing Right (MSR) Assets: Servicing
residential mortgage loans for third-party investors represents a significant
business activity of the Bank. As of June 30, 2007, mortgage loans serviced for
others totaled $946.1 million. The MSRs on these loans total $8.7 million as of
June 30, 2007. The expected and actual rates of mortgage loan prepayments are
the most significant factors driving the value of MSRs. Increases in mortgage
loan prepayments reduce estimated future net servicing cash flows because the
life of the underlying loan is reduced. In determining the fair value of the
MSRs, mortgage interest rates, which are used to determine prepayment rates and
discount rates, are held constant over the estimated life of the portfolio.
Fair values of the MSRs are provided by an independent third-party broker of
MSRs on a monthly basis. The values given by the broker are based upon current
market conditions and assumptions, which incorporate the expected life of the
loans, estimated costs to service the loans, servicing fees to be received and
other factors. MSRs are carried at the lower of the initial capitalized amount,
net of accumulated amortization, or fair value.

The
fair value of the MSRs is driven primarily by the effect current mortgage
interest rates have on the likelihood borrowers will prepay the underlying
mortgages by refinancing at a lower rate. Accordingly, higher interest rates
decrease the likelihood of prepayment, extending the life of the MSRs and
increasing the value of these assets. Lower interest rates increase the
likelihood of prepayment, contracting the life of the MSRs and decreasing the
value of these assets. This can have a significant impact on the Companys
income. There is no certainty on the direction and amount of interest rate
changes looking forward, and therefore, there is no certainty on the amount or
direction of the change in valuation.

13

An
analysis of changes in mortgage servicing rights asset follows:

Three
  Months Ended

Six
  Months EndedJune 30,
  2007

June 30,
  2006

June 30,2007

June 30,2006(In
  thousands)Balance at beginning of
  period


$
9,400



$
10,652



$
9,867



$
11,009Servicing rights
  originated and capitalized



438




490




670




807Amortization



(715
)



(682
)



(1,414
)



(1,356
)$
9,123



$
10,460



$
9,123



$
10,460Below
is an analysis of changes in the mortgage servicing right asset valuation
allowance:

Three
  Months Ended

Six
  Months EndedJune 30,
  2007

June 30,
  2006

June
  30,
  2007

June
  30,
  2006(In
  thousands)Balance at beginning of
  period


$
(787
)


$
(1,107
)


$
(752
)


$
(1,230
)Aggregate reductions
  credited to operations



354




211




453




334Aggregate additions
  charged to operations













(134
)



$
(433
)


$
(896
)


$
(433
)


$
(896
)The
fair values of the MSRs were $9.7 million, $9.5 million and $11.4 million on
June 30, 2007, December 31, 2006 and June 30, 2006, respectively.

The
primary risk characteristics of the underlying loans used to stratify the
servicing assets for the purposes of measuring impairment are interest rate and
original term.

The
Companys valuation allowance is used to recognize impairments of its MSRs. An
MSR is considered impaired when the market value of the MSR is below the
amortized book value of the MSR. The MSRs are accounted by risk tranche, with
the interest rate and term of the underlying loan being the primary strata used
in distinguishing the tranches. Each tranche is evaluated separately for
impairment.

The
Company employs an independent third party to analyze its MSRs for impairment
on a monthly basis. This independent third party analyzes the underlying loans
on all serviced loans and, based upon their knowledge of the value of MSRs that
are traded on the open market, they assign a current market value for each risk
tranche in the Companys portfolio. The Company then compares that market value
to the current amortized book value for each tranche. The change in market
value (up to the amortized value of the MSR) is recorded as an adjustment to
the MSR valuation allowance, with the offset being recorded as an addition or a
reduction to income.

The
independent third party used the following assumptions to calculate the market
value of the MSRs as of June 30, 2007, December 31, 2006 and June 30, 2006:

At June 30, 2007

At December 31,2006

At June
  30, 2006Prepayment Standard
  Assumption (PSA) speed


182.00
%

193.00
%

136.00
%Discount rate


10.00


10.00


10.01Earnings rate


5.00


5.00


5.0014

Overview

The
Companys net income increased by $207 thousand (6.8%) from the quarter ended
March 31, 2007 to the quarter ended June 30, 2007. However, the Companys net
income decreased $78 thousand (2.3%) from the second quarter of 2006 to the
second quarter of 2007. This decrease was primarily due to an increase in
non-interest expense and an increase in the provision for loan losses. Total
assets grew $41.0 million (3.0%) from December 31, 2006 to June 30, 2007.
Net income for the six months ended June 30, 2007 increased by $878 thousand
(16.1%) over the same period in 2006. This increase was primarily due to an
increase in net interest income and a decrease in the provision for loan
losses.

Results of Operations-Income Statement Analysis

General. Net income for the second quarter of 2007
was relatively unchanged at $3.3 million or $0.50 diluted earnings per share,
compared to $3.3 million or $0.50 diluted earnings per share for the same
period in 2006, a decrease of $78 thousand (2.3%) in net income and no change
in earnings per share. This decrease in net income was primarily due to an
increase in non-interest expense of $262 thousand and an increase in provision
for loan losses of $150 thousand. The increase in non-interest expense was
primarily due to an increase in supplies expense. The increase in the provision
for loan losses was due to an increased provision indicated by the reserve for
loan loss analysis (see Critical Accounting PoliciesAllowance for Loan
Losses). In addition, net interest income increased $93 thousand and
non-interest income decreased by $28 thousand. The increase in net interest
income was due to an increase in the volume of the interest-earning assets of
the Bank, which was partially offset by increases in the volume of interest-bearing
liabilities. Income tax expenses decreased $269 thousand due to lower taxable
income.

Net
income for the first six months of 2007 totaled $6.3 million or $0.96 diluted
earnings per share, compared to $5.4 million or $0.82 diluted earnings per
share for the same period in 2006, an increase of $878 thousand (16.1%) in net
income and an increase of $0.14 (17.1%) in diluted earnings per share. This
increase in net income was primarily due to an increase in net interest income
of $1.1 million and a decrease in provision for loan losses of $700 thousand.
The increase in net interest income was primarily due to an increase in the
volume of earning assets. Although the provision for loan losses expense
increased during the second quarter of 2007 compared to the second quarter of
2006, the provision decreased year-to-date. In addition, non-interest expense
increased by $605 thousand and non-interest income increased $4 thousand. The
increase in non-interest expense was mainly due to an increase in salaries and
employee benefits expense and an increase in occupancy expenses. Income tax
expenses increased $340 thousand due to higher pre-tax income.

The
profitability of the Companys operations depends primarily on its net interest
income, which is the difference between total interest earned on
interest-earning assets and total interest paid on interest-bearing
liabilities. The Companys net income is affected by its provision for loan
losses as well as other income and other expenses. The provision for loan
losses reflects the amount management believes to be adequate to cover probable
credit losses in the loan portfolio. Non-interest income or other income
consists of mortgage loan servicing fees, loan and other fees, service charges
on deposits, gain on sale of loans, gain on sale of securities and other
operating income. Other expenses include salaries and employee benefits,
occupancy expenses, data processing expenses, marketing, amortization and
valuation of mortgage servicing rights, supplies expense, loss on other real
estate owned, postage and other expenses.

The
amount of net interest income is affected by changes in the volume and mix of
interest-earning assets, the level of interest rates earned on those assets,
the volume and mix of interest-bearing liabilities, and the level of interest
rates paid on those interest-bearing liabilities. The provision for loan losses
is dependent on changes in the loan portfolio and managements assessment of
the collectibility of the loan portfolio, as well as economic and market
conditions. Other income and other expenses are impacted by growth of
operations and growth in the number of accounts through both acquisitions and
core banking business growth. Growth in operations affects other expenses as a
result of additional employees, branch facilities and promotional marketing
expenses. Growth in the number of accounts affects other income including
service fees as well as other expenses such as computer services, supplies,
postage, telecommunications and other miscellaneous expenses.

15

Net Interest
Income.The
following tables present, for the periods indicated, the total dollar amount of
interest income from average interest-earning assets and the resultant yields,
as well as the interest expense on average interest-bearing liabilities, and
the resultant costs, expressed both in dollars and rates:

Three
  Months Ended June 30,2007

2006Average
  
  Balance

Interest

Yield/Rate

Average
  
  Balance

Interest

Yield/Rate(Dollars
  in thousands)Interest-earning
Assets:Loans(1)(2)

$
1,161,062

$
22,021


7.61
%
$
1,080,807

$
19,712


7.32
%Taxable investment
securities


77,375


873


4.53


89,194


909


4.09Investment securities exempt
from federal
  income taxes(3)


26,265


606


9.25


18,818


317


6.76Federal funds sold


801


17


8.51


132


2


6.08Other interest-bearing
deposits


34,630


452


5.24


1,682


21


5.01Investment in unconsolidated
trust
  subsidiaries


1,116


23


8.27


992


22


8.90Total interest-earning
assets


1,301,249


23,992


7.40


1,191,625


20,983


7.06Non-interest-earning
assets


55,105








59,615Total assets

$
1,356,354







$
1,251,240Interest-bearing
Liabilities:Deposits:NOW deposits

$
96,995

$
599


2.48
%
$
84,784

$
403


1.91
%Money market deposits


197,762


1,189


2.41


169,869


882


2.08Savings deposits


228,281


1,445


2.54


250,433


1,341


2.15Time deposits over
$100,000


340,073


4,453


5.25


276,350


3,035


4.41Time deposits under
$100,000


218,030


2,736


5.03


176,100


1,787


4.07Short-term borrowings,
including ESOP
  borrowings under 1 year


271


6


8.88


27,224


281


4.15Long-term borrowings, including
ESOP
  borrowings over 1 year


64,222


611


3.82


63,280


628


3.98Junior subordinated debt owed to
  unconsolidated trusts


37,116


765


8.27


32,992


736


8.95Total interest-bearing
liabilities


1,182,750


11,804


4.00


1,081,032


9,093


3.37Demand
depositsnon-interest-bearing


39,702








40,735Other non-interest-bearing
liabilities


49,038








49,948Stockholders equity,
including stock owned
  by ESOP


84,864








79,525Total liabilities and
stockholders equity

$
1,356,354







$
1,251,240Net interest income on a fully
  tax-equivalent basis/interest rate Spread(4)




$
12,188


3.40
%



$
11,890


3.69
%Net interest margin on a fully
  tax-equivalent basis(5)








3.76
%







4.00
%Net interest
margin(5)








3.66
%







3.96
%

(1)
Includes
  non-accrual loans of $10.5 million and $8.1 million for June 30, 2007 and
  2006, respectively.(2)
Interest
  income includes loan origination fees of $807 thousand and $1.1 million for
  the three months ended June 30, 2007 and 2006, respectively.(3)
Non-taxable
  investment income is presented on a fully tax-equivalent basis, adjusting for
  federal and state exemption of interest income and certain other permanent
  tax differences.(4)
Interest
  rate spread represents the difference between the average yield on
  interest-earning assets and the average cost of interest-bearing liabilities
  and is presented on a fully tax-equivalent basis.(5)
Net interest
  margin represents net interest income as a percentage of average
  interest-earning assets.16

For
the second quarter of 2007, net interest income on a fully tax-equivalent basis
increased $298 thousand (2.5%) to $12.2 million from $11.9 million for the
second quarter of 2006. The increase in net interest income resulted from an
increase in interest income on a fully tax-equivalent basis of $3.0 million
(14.3%), which was partially offset by an increase in interest expense of $2.7
million (29.8%). Interest income increased mainly due to an increase in average
interest-earning assets of $109.6 million (9.2%), which accounted for an
increase of $2.0 million in interest income on a fully tax-equivalent basis.
There was also an increase in the yield on interest-earning assets of 34 basis
points, which accounted for an increase in interest income on a fully
tax-equivalent basis of $1.0 million. Interest expense increased mainly due to
an increase in the cost of interest-bearing liabilities of 63 basis points,
which accounted for $1.7 million of the increase. In addition, average total
interest-bearing liabilities increased $101.7 million (9.4%), accounting for
$1. 0 million of the increase in interest expense. The net interest margin
expressed on a fully tax-equivalent basis decreased 24 basis points to 3.76%
for the quarter ended June 30, 2007 from 4.00% for the quarter ended June 30,
2006.

Six
  Months Ended June 30,2007

2006Average
  
  Balance

Interest

Yield/Rate

Average
  
  Balance

Interest

Yield/Rate(Dollars
  in thousands)Interest-earning
Assets:Loans(1)(2)

$
1,159,586

$
44,163


7.68
%
$
1,059,365

$
37,615


7.16
%Taxable investment
securities


78,373


1,808


4.65


94,748


1,900


4.04Investment securities exempt
from federal
  income taxes(3)


25,559


1,045


8.24


18,853


641


6.86Federal funds sold


1,336


37


5.58


257


5


3.92Other interest-bearing
deposits


33,927


884


5.25


7,061


153


4.37Investment in unconsolidated
trust
  subsidiaries


1,116


46


8.31


992


44


8.94Total interest-earning
assets


1,299,897


47,983


7.44


1,181,276


40,358


6.89Non-interest-earning
assets


57,508








59,696Total assets

$
1,357,405







$
1,240,972Interest-bearing
Liabilities:Deposits:NOW deposits

$
94,830

$
1,182


2.51
%
$
84,778

$
765


1.82
%Money market deposits


195,025


2,296


2.37


159,516


1,447


1.83Savings deposits


232,128


2,950


2.56


254,375


2,516


1.99Time deposits over
$100,000


342,979


8,897


5.23


280,458


5,882


4.23Time deposits under
$100,000


215,974


5,352


5.00


173,280


3,380


3.93Short-term borrowings,
including ESOP
  borrowings under 1 year


599


19


6.40


20,530


419


4.12Long-term borrowings, including
ESOP
  borrowings over 1 year


63,912


1,223


3.86


66,392


1,308


3.97Junior subordinated debt owed to
  unconsolidated trusts


37,116


1,527


8.30


32,992


1,464


8.95Total interest-bearing
liabilities


1,182,563


23,446


4.00


1,072,321


17,181


3.23Demand
depositsnon-interest-bearing


38,135








40,275Other non-interest-bearing
liabilities


52,844








49,714Stockholders equity,
including stock owned
  by ESOP


83,863








78,662Total liabilities and
stockholders equity

$
1,357,405







$
1,240,972Net interest income on a fully
  tax-equivalent basis/interest rate spread(4)




$
24,537


3.44
%



$
23,177


3.66
%Net interest margin on a fully
  tax-equivalent basis(5)








3.81
%







3.96
%Net interest
margin(5)








3.73
%







3.92
%

(1)
Includes
  non-accrual loans of $9.2 million and $8.1 million for June 30, 2007 and
  2006, respectively.(2)
Interest
  income includes loan origination fees of $1.7 million and $1.8 million for
  the six months ended June 30, 2007 and 2006, respectively.17

(3)
Non-taxable
  investment income is presented on a fully tax-equivalent basis, adjusting for
  federal and state exemption of interest income and certain other permanent
  tax differences.(4)
Interest
  rate spread represents the difference between the average yield on
  interest-earning assets and the average cost of interest-bearing liabilities
  and is presented on a fully tax-equivalent basis.(5)
Net interest
  margin represents net interest income as a percentage of average
  interest-earning assets.For
the six months ended June 30, 2007, net interest income on a fully
tax-equivalent basis increased $1.4 million (5.9%) to $24.5 million from $23.2
million for the six months ended June 30, 2006. The increase in net interest
income resulted from an increase in interest income on a fully tax-equivalent
basis of $7.6 million (18.9%), which was partially offset by an increase in
interest expense of $6.2 million (36.5%). The increase in interest income on a
fully tax-equivalent basis was mainly due to an increase in average
interest-earning assets of $118.6 million (10.0%), which accounted for $4.3
million of the increase. There was also an increase on the yield of
interest-earning assets of 55 basis points, which increased interest income on
a fully tax-equivalent basis by $3.3 million. The increase in interest expense
was due to an increase in the yield on interest-bearing liabilities of 77 basis
points, which accounted for an increase in interest expense of $4.0 million. In
addition, the average interest-bearing liabilities increased a total of $110.2
million (10.3%), which increased interest expense by $2.2 million, The net
interest margin expressed on a fully tax-equivalent basis decreased 15 basis
points to 3.81% for the six month period ended June 30, 2007 from 3.96% for the
same period in 2006.

The
following table reconciles net interest income on a fully tax-equivalent basis
for the periods presented:

Three Months Ended
  June 30,

Six Months Ended
  June 30,2007

2006

2007

2006(In thousands)Net interest
  income

$
11,865

$
11,772

$
24,057

$
22,938Tax-equivalent
  adjustment to net interest income


323


118


480


239Net interest
  income, fully tax-equivalent basis

$
12,188

$
11,890

$
24,537

$
23,17718

Volume,
Mix and Rate Analysis of Net Interest Income. The
following tables present the extent to which changes in volume, changes in
interest rates, and changes in the interest rates times the changes in volume
of interest-earning assets and interest-bearing liabilities have affected the
Companys interest income and interest expense during the periods indicated.
Information is provided on changes in each category due to (i) changes
attributable to changes in volume (change in volume times the prior period
interest rate), (ii) changes attributable to changes in interest rate
(changes in rate times the prior period volume) and (iii) changes attributable
to changes in rate/volume (changes in interest rate times changes in volume).
Changes attributable to the combined impact of volume and rate have been
allocated proportionally to the changes due to volume and the changes due to
rate.

Three
  Months Ended June 30,

Six
  Months Ended June 30,2007
  Compared to 2006

2007
  Compared to 2006Change Due
  to Volume

Change
  Due
  to Rate

Total
  Change

Change
  Due
  to Volume

Change
  Due
  to Rate

Total
  Change(In
  thousands)Interest-earning
Assets:Loans


$
1,503



$
806


$
2,309


$
3,705



$
2,843


$
6,548Taxable investment
securities



(127
)



91



(36
)


(354
)



262



(92
)Investment securities exempt
from federal
  income taxes(1)



150




139



289



257




147



404Federal funds sold



14




1



15



29




3



32Other interest-bearing
deposits



429




2



431



694




37



731Investment in unconsolidated
trust
  subsidiaries



3




(2
)


1



6




(4
)


2Total increase
(decrease) in interest
  income



1,972




1,037



3,009



4,337




3,288



7,625Interest-bearing
Liabilities:NOW deposits


$
64



$
132


$
196


$
99



$
318


$
417Money market deposits



157




150



307



363




486



849Savings deposits



(126
)



230



104



(235
)



669



434Time deposits over
$100,000



773




645



1,418



1,462




1,553



3,015Time deposits under
$100,000



476




473



949



940




1,032



1,972Short-term borrowings



(426
)



151



(275
)


(551
)



151



(400
)Long-term borrowings



9




(26
)


(17
)


(48
)



(37
)


(85
)Junior subordinated debt owed to
  unconsolidated trusts



89




(60
)


29



175




(112
)


63Total increase
(decrease) in interest
  expense



1,016




1,695



2,711



2,205




4,060



6,265Increase
(decrease) in net interest income


$
956



$
(658
)

$
298


$
2,132



$
(772
)

$
1,360(1)
Non-taxable
  investment income is presented on a fully tax-equivalent basis, adjusting for
  federal and state exemption of interest income and certain other permanent
  income tax differences.19

Other
Income. Changes in other income between the three
months ended June 30, 2007 and 2006, and between the six months ended June 30,
2007 and 2006, were as follows:

Three
  Months Ended
  June 30,






Six
  Months Ended
  June 30,Net



Net2007

2006

difference

2007

2006

difference(In
  thousands)Other
income:Mortgage loan
servicing fees

$
629

$
667


$
(38
)

$
1,252

$
1,307


$
(55
)Loan and other
fees


965


812



153



1,693


1,521



172Service
charges on deposits


443


397



46



823


778



45Gain on sale
of loans


528


591



(63
)


937


891



46Other
operating income


310


436



(126
)


598


802



(204
)$
2,875

$
2,903


$
(28
)

$
5.303

$
5,299


$
4In
the second quarter of 2007, other income was relatively unchanged from the same
period in 2006, decreasing by $28 thousand (1.0%), remaining at $2.9 million.
Loan and other fees increased by $153 thousand (18.8%), mainly due to an
increase in fees collected from ATM operations due largely to higher foreign
(non-Bank customer) transactions. Other operating income decreased $126
thousand (28.9%), mainly due to a decrease in title insurance premiums
collected resultant from lower volume.

In
the first six months of 2007, other income was relatively unchanged from the
same period in 2006, increasing by $4 thousand (0.1%), remaining at $5.3
million. Other operating income decreased $204 thousand (25.4%), mainly due to
a decrease in title insurance premiums collected resultant from lower volume.
Loan and other fees increased $172 thousand (11.3%), mainly due to an increase
in fees collected from ATM operations due largely to higher foreign (non-Bank
customer) transactions.

Other
Expenses. Changes in other expenses between the
three months ended June 30, 2007 and 2006 and the six months ended June 30,
2007 and 2006 were as follows:

Three
  Months Ended
  June 30,






Six
  Months Ended
  June 30,Net



Net2007

2006

difference

2007

2006

difference(In
  thousands)Other expenses:Salaries and
employee benefits

$
4,559

$
4,423


$
136


$
9,204

$
8,848


$
356Occupancy


934


828



106



1,916


1,685



231Data
processing


404


427



(23
)


851


895



(44
)Marketing


554


504



50



1,040


941



99Amortization
and valuation of mortgage
  servicing rights


362


471



(109
)


1,096


1,022



74Supplies


349


149



200



534


350



184(Gain) loss on
sale of other real estate
  owned


(8
)

34



(42
)


(30
)

232



(262
)Postage


155


146



9



330


303



27Other


1,286


1,351



(65
)


2,390


2,450



(60
)$
8,595

$
8,333


$
262


$
17,331

$
16,726


$
605For
the second quarter of 2007, other expenses increased $262 thousand (3.1%) from
the second quarter of 2006, from $8.3 million in 2006 to $8.6 million in 2007.
Supplies expense increased $200 thousand (134.2%), mainly due to one-time costs
of supplies and stationary associated with a revision to the banks logo and
related marketing initiatives. Salaries and employee benefits increased $136
thousand (3.1%), mainly due to an increase in seven full-time equivalent
employees (a 2.5% increase) from 279 in 2006 to 286 in 2007. These employees
were added to support the additional growth in assets between the two periods
(total assets grew $128.9 million, or 10.1%, between the two periods). The
amortization and valuation of mortgage servicing rights decreased $109 thousand
(23.1%), mainly due to an increase in the recovery of the valuation allowance
in the second quarter of 2007 compared to 2006. This was due to a slowing of
the prepayment speeds associated with serviced loans between the two periods.

20

For
the six months ended June 30, 2007, other expenses increased $605 thousand
(3.6%) to $17.3 million from $16.7 million in the first six months of 2006.
This increase was largely due to an increase in salaries and employee benefits
of $356 thousand (4.0%), mainly due to an increase in the number of full-time
equivalent employees and an increase in compensation per employee. (Gain) loss
on sale of other real estate owned decreased $262 thousand (112.9%) mainly due
to a drop in the sale activity in other real estate owned between the two
periods. Occupancy expense increased $231 thousand (13.7%) mainly due to the lease expense on the land leased in Santa Fe
for the construction of a third office in Santa Fe. This expense is offset by
interest income on a mortgage loan in favor of Trinity secured by the property.

Income Taxes. In
the second quarter of 2007, income tax expense decreased $269 thousand (12.8%)
over the second quarter of 2006 to a total of $1.8 million compared to $2.1
million. The effective tax rate decreased to 35.9% in the second quarter of
2007 compared to 38.6% in the second quarter of 2006. The decrease was mainly
attributable to having more tax-exempt interest income in 2007 than in 2006.

In
the six months ended June 30, 2007, income tax expense increased $340 thousand
(10.4%), to a total of $3.6 million compared to $3.3 million for the same
period for the previous year. The effective tax rate decreased to 36.3% in the
first six months of 2007, compared to 37.5% in the first six months of 2006.
The decrease was mainly attributable to having more tax-exempt interest income
in 2007 than in 2006.

Financial
Condition-Balance Sheet Analysis

General. Total
assets at June 30, 2007 were $1.4 billion, an increase of $41.0 million
(3.0%) from December 31, 2006. Net loans accounted for most of this
change, increasing $43.1 million (3.8%) during the first six months of 2007.
During the same period, total liabilities increased by $37.3 million (2.9%),
remaining at $1.3 billion. The increase in total liabilities was primarily due
to an increase in deposits of $39.0 million (3.4%). Stockholders equity
(including stock owned by the Employee Stock Ownership Plan) increased $3.7
million (4.5%) to $84.3 million on June 30, 2007 compared to $80.7 million on
December 31, 2006.

Investment Securities.
The primary purposes of the investment portfolio are to provide a source of
earnings for the purpose of managing liquidity, to provide collateral to pledge
against public deposits and to control interest rate risk. In managing the
portfolio, the Company seeks to obtain the objectives of safety of principal,
liquidity, diversification and maximized return on funds. For an additional
discussion with respect to these matters, see Liquidity and Sources of
Capital under Item 2 and Asset Liability Management under Item 3 below.

21

The
following tables set forth the amortized cost and fair value of the Companys
securities by accounting classification category and by type of security as
indicated:

At June
  30, 2007

At
  December 31, 2006

At June
  30, 2006Amortized
  Cost

Fair
  Value

Amortized
  Cost

Fair
  Value

Amortized
  Cost

Fair
  Value(In thousands)Investment
  securities Available for Sale:Government sponsored agencies


$
84,080



$
83,900



$
73,025



$
72,787



$
73,387



$
72,650States and political subdivisions



15,677




15,499




15,190




15,157




5,962




5,920Equity securities



1




6




1




6




1




5Total investment securities available for
  sale


$
99,758



$
99,405



$
88,216



$
87,950



$
79,350



$
78,575Investment securities Held to Maturity:Government sponsored agencies


$




$




$




$




$
2,505



$
2,500States and political subdivisions



10,774




10,773




10,968




10,961




12,737




12,723Total investment securities held to
  maturity


$
10,774



$
10,773



$
10,968



$
10,961



$
15,242



$
15,223Other
  investments:Non-marketable equity securities (including
  FRB and FHLB stock)


$
6,116



$
6,116



$
6,820



$
6,820



$
7,808



$
7,808Investment in unconsolidated trusts



1,116




1,116




1,116




1,116




992




992Total other investments


$
7,232



$
7,232



$
7,936



$
7,936



$
8,800



$
8,800Loan Portfolio.
The following tables set forth the composition of the loan portfolio:

At June
  30, 2007

At
  December 31, 2006

At June
  30, 2006Amount

Percent

Amount

Percent

Amount

Percent(Dollars
  in thousands)Commercial

$
124,571


10.58
%
$
127,950


11.29
%
$
108,603


9.86
%Commercial
  real estate


406,342


34.51


388,149


34.23


395,197


35.90Residential
  real estate


339,769


28.85


324,051


28.58


327,944


29.78Construction
  real estate


249,316


21.17


235,534


20.78


212,329


19.28Installment
  and other


57,639


4.89


58,045


5.12


56,983


5.18Total loans


1,177,637


100.00


1,133,729


100.00


1,101,056


100.00Unearned
  income


(2,161
)




(2,005
)




(2,110
)Gross loans


1,175,476





1,131,724





1,098,946Allowance
  for loan losses


(12,837
)




(12,167
)




(10,116
)Net loans

$
1,162,639




$
1,119,557




$
1,088,830Total
loans increased $43.9 million (3.9%) to $1.2 billion at June 30, 2007 from $1.1
billion at December 31, 2006. The increase was due primarily to growth in the Companys
commercial real estate and residential real estate portfolios. During the same
period, there was a slight drop in the commercial and installment and other
portfolios.

Asset
Quality. The
following table sets forth the amounts of non-performing loans and
non-performing assets at the dates indicated:

At
  June 30, 2007

At
  December 31, 2006

At
  June 30, 2006(Dollars
  in thousands)Non-accruing
  loans


$
10,774



$
8,767



$
7,826Loans
  90 days or more past due, still accruing interest



121




1




3Total
  non-performing loans



10,895




8,768




7,829Other real
  estate owned



1,184




165




290Other
  repossessed assets



14




60




56Total
  non-performing assets


$
12,093



$
8,993



$
8,175Total
  non-performing loans to total loans



0.93
%



0.77
%



0.71
%Allowance
  for loan losses to non-performing loans



117.82
%



138.77
%



129.21
%Total
  non-performing assets to total assets



0.86
%



0.66
%



0.64
%22

At
June 30, 2007, total non-performing assets increased $3.1 million (34.5%) to
$12.1 million from $9.0 million at December 31, 2006, primarily due to
increases in non-performing loans of $2.1 million and an increase in other real
estate owned of $1.0 million. Non-performing loans increased mainly due to a
large commercial loan and a large construction relationship being placed on
non-accrual status in 2007. Other real estate owned increased mainly due to the
acquisition of four pieces of residential real estate due to foreclosure.

Allowance for
Loan Losses. Management
believes the allowance for loan losses accounting policy is critical to the
portrayal and understanding of the Companys financial condition and results of
operations. As such, selection and application of this critical accounting
policy involves judgments, estimates, and uncertainties that are susceptible
to change. In the event that different assumptions or conditions were to
prevail, and depending upon the severity of such changes, the possibility of
materially different financial condition or results of operations is a
reasonable likelihood.

The
allowance for loan losses is maintained at an amount that management believes
will be appropriate to absorb probable losses on existing loans, based on an
evaluation of the collectibility of loans and prior loss experience. This
evaluation also takes into consideration such factors as changes in the nature
and volume of the loan portfolio, the value of underlying collateral, overall
portfolio quality, review of specific problem loans and current economic
conditions that may affect the borrowers ability to pay. While management uses
the best information available to make its evaluation, future adjustments to
the allowance may be necessary if there are significant changes in economic
conditions.In addition, as an integral part of their examination process
regulatory agencies periodically review the Companys allowance for loan losses
and may require the Company to make additions to the allowance based on their
evaluation of information available at the time of their examinations.

The
following table presents an analysis of the allowance for loan losses for the
periods presented:

Three
  Months Ended
  June 30,

Six
  Months Ended
  June 30,2007


2006


2007


2006(Dollars
  in thousands)Balance at
  beginning of period

$
12,535

$
9,256

$
12,167

$
8,842Provision
  for loan losses


1,050


900


2,100


2,800Total
  charge-offs


(783
)

(73
)

(1,619
)

(1,642
)Total
  recoveries


35


33


189


116Net
  charge-offs


(748
)

(40
)

(1,430
)

(1,526
)Balance at
  end of period

$
12,837

$
10,116

$
12,837

$
10,116Gross loans
  at end of period

$
1,175,476

$
1,098,946

$
1,175,476

$
1,098,946Ratio of
  allowance to total loans


1.09
%

0.92
%

1.09
%

0.92
%Ratio of net charge-offs to average
loans (1)


0.26
%

0.01
%

0.25
%

0.29
%(1)          Net
charge-offs are annualized for the purposes of this calculation.

Net
charge-offs for the three months ended June 30, 2007 totaled $748 thousand, an
increase of $708 thousand (1,770.0%), from a total of $40 thousand for the
three months ended June 30, 2006. The majority of the charge-offs were
commercial and installment loans. The large increase in net charge-offs
for the second quarter of 2007 was due to the historically low amount of net
charge-offs in the second quarter of 2006. The net charge-offs for the six
months ended June 30, 2007 totaled $1.43 million, a decrease of $96 thousand
(6.3%) from net charge-offs of $1.53 million in the six months ended June 30,
2006. Additionally, the provision for loan losses increased by $150 thousand
(16.7%) for the three months ended June 30, 2007 from the three months ended
June 30, 2006, due to managements analysis of current non-performing loans.
For further information, please see discussion in Critical Accounting Policies
Allowance for Loan Losses and Results of OperationsIncome Statement
Analysis above.

23

The
following table sets forth the allocation of the allowance for loan losses in
each loan category for the periods presented and the percentage of loans in
each category to total loans. An allocation for a loan classification is only
for internal analysis of the adequacy of the allowance and is not an indication
of expected or anticipated losses:

At June
  30, 2007

At December
  31, 2006

At June
  30, 2006Amount


Percent


Amount


Percent


Amount


Percent(Dollars
  in thousands)Commercial

$
4,027


10.58
%
$
4,188


11.29
%
$
3,396


9.86
%Commercial
  and residential real estate


4,542


63.36


4,681


62.81


3,069


65.68Construction
  real estate


3,228


21.17


2,362


20.78


2,621


19.28Installment
  and other


1,015


4.89


928


5.12


1,049


5.18Unallocated


25


N/A


8


N/A


(19
)

N/ATotal

$
12,837


100.00
%
$
12,167


100.00
%
$
10,116


100.00
%N/Anot
applicable

The
allowance for loan losses increased $2.7 million (26.9%) from June 30, 2006 to
June 30, 2007. This was mainly due to an increase in the allowance allocated to
commercial and residential real estate, commercial non-real estate and
construction loans. The allocation for commercial and residential real estate
loans increased $1.5 million (47.9%) from June 30, 2006 to June 30, 2007, due
to an increase in the historical loss experience (based upon regression
analysis) of $3.4 million and an increase in specifically identified loans of
$40 thousand, which was partially offset by a decrease in the allocation based
upon qualitative adjustments of $2.0 million. The allocation for commercial
non-real estate loans increased $631 thousand (18.6%) from June 30, 2006 to
June 30, 2007, due to an increase in the historical loss experience (based upon
regression analysis) of $2.0 million, which was partially offset by a decrease
in the allocation based upon qualitative adjustments of $1.3 million and a
decrease in specifically identified loans of $91 thousand. The allocation for
construction loans increased $607 thousand (23.2%) from June 30, 2006 to June
30, 2007, due to an increase in the historical loss experience (based upon
regression analysis) of $1.4 million and an increase in specifically identified
loans of $24 thousand, which was partially offset by a decrease in the
allocation based upon qualitative adjustments of $785 thousand. The adjustments
relating to the historical loss experience were partially due to moving from a
pure historical loss analysis to a regression analysis, and the adjustments
relating to the qualitative factors were partially due to a quantification of
these qualitative factors. For further information, please see discussion in
Critical Accounting PoliciesAllowance for Loan Losses above.

The
Bank expects somewhat slower growth in its loan portfolio as the pace of
economic expansion in the New Mexico economy has moderated during the past year
along with continued increases in interest rates. The Bank anticipates the
volume of commercial real estate and construction loans to slow as the
construction industrys home building boom appears to be slowing and returning
to a historically normal volume. Commercial real estate has strengthened over
the past several years due to occupancy rates returning to their historical
averages and demand from new businesses looking to expand within the state.
Although evidence indicates that the residential construction boom that New
Mexico has experienced over the last four years is slowing, the sector for
homes below $500 thousand remains strong with sales declining slightly but
median prices rising. The Bank expects residential real estate for property
worth greater than $1.5 million to continue to be soft. Total net charge-offs
were approximately the same in the first six months of 2007 as the same period
in 2006.

Additions
to the allowance for loan losses, which are charged to earnings through the
provision for loan losses, are determined based on a variety of factors, as
indicated above. Although the Company believes the allowance for loan losses is
sufficient to cover probable losses inherent in the loan portfolio, there can
be no assurance that the allowance will prove sufficient to cover actual loan
losses.

Potential
Problem Loans.The Company utilizes an internal asset
classification system as a means of reporting problem and potential problem
assets. At scheduled Board of Directors meetings every quarter, a list of total
adversely classified assets is presented, showing OREO, other repossessed
assets, and all loans listed as Substandard, Doubtful and Loss. All
non-accrual loans are classed either as Substandard or Doubtful and are
thus included in total adversely classified assets. A separate watch list of
loans classified as Special Mention is also presented. An asset is classified
Substandard if it is inadequately protected by the current net worth and paying
capacity of the obligor or by the collateral pledged, if any. Substandard
assets include those characterized by the distinct possibility that the Company
will sustain some loss if the deficiencies are not corrected. Assets classified
as Doubtful have all the weaknesses inherent in those classified Substandard
with the added characteristic that the weaknesses present make collection or
liquidation in full, on the basis of currently existing facts, conditions and
values, highly questionable and improbable. Assets classified as Loss are those
considered uncollectible and viewed as non-bankable assets worthy of
charge-off. Assets that do not currently expose the Company to sufficient risk
to warrant classification in one of the aforementioned categories but possess
weaknesses that may or may not be within the control of the customer, are
deemed to be Special Mention.

24

The
Companys determinations as to the classification of its assets and the amount
of its valuation allowances are subject to review by the Banks primary
regulators, which can order the establishment of additional general or specific
loss allowances. The OCC, in conjunction with the other federal banking
agencies, has adopted an interagency policy statement on the allowance for loan
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the policy
statement recommends that (i) institutions have effective systems and
controls to identify, monitor and address asset quality problems;
(ii) management analyze all significant factors that affect the
collectibility of the portfolio in a reasonable manner; and
(iii) management establish acceptable allowance evaluation processes that
meet the objectives set forth in the policy statement. Management believes it
established an adequate allowance methodology to determine probable loan losses
and has provided for probable loan losses in the allowance accordingly. The
Company analyzes its process regularly with modifications made as necessary,
and reports those results quarterly at Board of Directors meetings. However,
there can be no assurance that regulators, in reviewing the Companys loan
portfolio, will not request the Company to materially increase its allowance
for loan losses. Although management believes that adequate specific and
general loan loss allowances have been established, actual losses are dependent
upon future events and, as such, further additions to the level of specific and
general loan loss allowances may become necessary.

The
following table shows the amounts of adversely classified assets and special
mention loans as of the periods indicated:

At June
  30, 2007

At
  December 31, 2006

At June
  30, 2006(Dollars
  in thousands)Loans
  classified as:Substandard

$
25,559

$
12,924

$
12,957Doubtful


1,619


2,177


1,646Total
  adversely classified loans


27,178


15,101


14,603Other real estate
  owned


1,184


165


290Other
  repossessed assets


14


60


56Total
  adversely classified assets

$
28,376

$
15,326

$
14,949Special
  mention loans

$
1,848

$
9,044

$
3,824Total
adversely classified assets increased $13.4 million (89.8%) from June 30, 2006
to June 30, 2007. The main reason for the increase was an increase of $12.6
million in substandard loans. This was primarily due to the downgrading of
three large commercial relationships in the first six months of 2007. The
Company believes it has adequate collateral as security for these loans.
Special mention loans decreased $7.2 million (79.6%) between June 30, 2006 and
June 30, 2007, primarily due to a combination of upgrades to the pass category
and downgrades to the substandard risk rating.

Sources of Funds

Liquidity and
Sources of Capital

The
Companys cash flows are comprised of three classifications: cash flows from
operating activities, cash flows from investing activities and cash flows from
financing activities. Net cash provided by operating activities was $12.4
million and $11.1 million for the six months ended June 30, 2007 and June 30,
2006. Net cash provided by operating activities increased $1.3 million in the
first six months of 2007 compared to the first six months of 2006 largely due
to an increase in the sale of loans held for sale, net of originations, of $2.1
million. Net cash used in investing activities was $(57.4) million and ($58.7)
million for the six months ended June 30, 2007 and June 30, 2006. The $1.3
million decrease in cash used in investing activities was largely due to a
decrease in cash used to fund loans, net of prepayments, of $34.9 million and
an increase in cash provided by the proceeds from maturities and paydowns of
investment securities of $18.9 million. This was partially offset by an
increase in cash used for the purchase of investment securities of $52.3
million. Net cash provided by financing activities was $34.5 million and $22.2
million for the six months ended June 30, 2007 and June 30, 2006, respectively.
The $12.3 million increase in cash provided by financing activities was mainly
due to an increase in new deposit growth of $36.7 million from the first six
months of 2007 compared to the first six months of 2006, which was partially
offset by a decrease in cash provided by borrowings (net of repayments) of
$23.4 million.

In
the event that additional short-term liquidity is needed, the Company has
established relationships with several large regional banks to provide
short-term borrowings in the form of federal funds purchases. Management
believes that the Company could borrow up to $142.0 million for a short
time from these banks on a collective basis based on current lines of credit
the Company has at these banks. Additionally, the Company is a member of the
FHLB and has the ability to borrow from the FHLB. As a contingency plan for
significant funding needs, the Asset/Liability Management Committee may also consider
the sale of investment securities, selling securities under agreement to
repurchase, sale of certain loans and/or the temporary curtailment of lending
activities.

25

At
June 30, 2007, Trinitys total risk-based capital ratio was 11.61%, the Tier 1
capital to risk-weighted assets ratio was 9.81%, and the Tier 1 capital to
average assets ratio was 8.25%. At December 31, 2006, Trinitys total
risk-based capital ratio was 11.50%, the Tier 1 capital to risk-weighted assets
ratio was 9.60%, and the Tier 1 capital to average assets ratio was 7.97%.

At
June 30, 2007, the Banks total risk-based capital ratio was 11.14%, the Tier 1
capital to risk-weighted assets ratio was 10.01%, and the Tier 1 capital to
average assets ratio was 8.42%. At December 31, 2006, the Banks total
risk-based capital ratio was 10.97%, the Tier 1 capital to risk-weighted assets
ratio was 9.87%, and the Tier 1 capital to average assets ratio was 8.17%. The
Bank was categorized as well-capitalized under Federal Deposit Insurance
Corporation regulations at June 30, 2007 and December 31, 2006.

At
June 30, 2007 and December 31, 2006, Trinitys book value per common share was
$12.93 and $12.35.

Item 3. Quantitative and Qualitative
Disclosures About Market Risk

Asset Liability Management

The
Companys net interest income is subject to interest rate risk to the extent
that it can vary based on changes in the general level of interest rates. It is
the Companys policy to maintain an acceptable level of interest rate risk over
a range of possible changes in interest rates while remaining responsive to
market demand for loan and deposit products. The strategy the Company employs
to manage its interest rate risk is to measure the risk using an
asset/liability simulation model and adjust the maturity of securities in its
investment portfolio to manage that risk.

Interest
rate risk can also be measured by analyzing the extent to which the repricing
of assets and liabilities are mismatched to create an interest sensitivity
gap. An asset or liability is considered to be interest rate sensitive within
a specific time period if it will mature or reprice within that time period.
The interest rate sensitivity gap is defined as the difference between the
amount of interest-earning assets maturing or repricing within a specific time
period and the amount of interest-bearing liabilities maturing or repricing
within that same time period. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, therefore, a negative gap would tend
to adversely affect net interest income. Conversely, during a period of falling
interest rates, a negative gap position would tend to result in an increase in
net interest income.

26

The
following tables set forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at June 30, 2007, which the Company
anticipates, based upon certain assumptions, to reprice or mature in each of
the future time periods shown. Except as stated below, the amount of assets and
liabilities shown which reprice or mature during a particular period were
determined based on the earlier of the term to repricing or the term to repayment
of the asset or liability. These tables are intended to provide an
approximation of the projected repricing of assets and liabilities at June 30,
2007 on the basis of contractual maturities and scheduled rate adjustments
within a three-month period and subsequent selected time intervals. The loan
amounts in the table reflect principal balances expected to be reinvested
and/or repriced as a result of contractual amortization and rate adjustments on
adjustable-rate loans. The contractual maturities and amortization of loans and
investment securities reflect modest prepayment assumptions. While NOW, money
market and savings deposit accounts have adjustable rates, it is assumed that
the interest rates on these accounts will not adjust immediately to changes in
other interest rates. Therefore, the table is calculated assuming that these
accounts will reprice based upon an historical analysis of decay rates of these
particular accounts, with repricing assigned to these accounts from 1 to 11
months.

Time to Maturity or RepricingAs of June 30, 2007:

0-90 Days

91-365 Days

1-5 Years

Over 5 Years

Total(Dollars in thousands)Interest-earning
  Assets:Loans

$
583,848

$
446,920

$
51,855

$
92,853

$
1,175,476Loans held for sale


6,957











6,957Investment securities


27,092


65,267


12,441


11,495


116,295Securities purchased under
  agreements to resell


500











500Interest-bearing deposits
  with banks


36,987











36,987Investment in
  unconsolidated trusts


186








930


1,116Total
interest-earning assets

$
655,570

$
512,187

$
64,296

$
105,278

$
1,337,331Interest-bearing
  Liabilities:NOW deposits

$
61,383

$
27,672

$


$


$
89,055Money market deposits


141,606


69,530








211,136Savings deposits


179,669


77,602








257,271Time deposits over
  $100,000


68,493


205,536


54,304


2,064


330,397Time deposits under
  $100,000


47,390


143,907


25,486


1,837


218,620Short-term borrowings














Long-term borrowings


8


22


27,670


35,886


63,586Capital lease obligations











2,211


2,211Borrowings made by ESOP to
  outside parties


271











271Junior subordinated debt owed
to unconsolidated trusts


6,186








30,930


37,116Total
interest-bearing liabilities

$
505,006

$
524,269

$
107,460

$
72,928

$
1,209,663Rate sensitive assets
  (RSA)

$
655,570

$
1,167,757

$
1,232,053

$
1,337,331

$
1,337,331Rate sensitive liabilities
  (RSL)


505,006


1,029,275


1,136,735


1,209,663


1,209,663Cumulative GAP (GAP=RSA-RSL)


150,564


138,482


95,318


127,668


127,668RSA/Total assets


46.82
%

83.40
%

87.99
%

95.51
%

95.51
%RSL/Total assets


36.07
%

73.51
%

81.18
%

86.39
%

86.39
%GAP/Total assets


10.75
%

9.89
%

6.81
%

9.12
%

9.12
%GAP/RSA


22.97
%

11.86
%

7.74
%

9.55
%

9.55
%Certain
shortcomings are inherent in the method of analysis presented in the foregoing
table. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types of assets may lag behind changes in
market rates. Additionally, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Therefore, the Company does not rely
solely on a gap analysis to manage its interest rate risk, but rather uses what
management believes to be the more reliable simulation model relating to
changes in net interest income.

27

Based
on simulation modeling at June 30, 2007 and December 31, 2006, the Companys
net interest income would change over a one-year time period due to changes in
interest rates as follows:

Change in Net Interest Income Over One Year
Horizon

At June
  30, 2007

At
  December 31, 2006Changes
  in Levels of
  Interest RatesDollar
  Change

Percentage
  Change

Dollar
  Change

Percentage
  Change(Dollars
  in thousands)+ 2.00
%

$
(1,949
)


(3.93
)%

$
(2,695
)


(5.69
)%+ 1.00



640



1.29



(180
)


(0.38
)(1.00
)


(2,475
)


(4.99
)


(1,629
)


(3.44
)(2.00
)


(3,134
)


(6.32
)


(2,070
)


(4.37
)The
Companys simulations assume the following:

1.
Changes in
  interest rates are immediate.2.
It is the
  Companys policy that interest rate exposure due to a 2% interest rate rise
  or fall be limited to 15% of its annual net interest income, as forecasted by
  the simulation model. As demonstrated by the table above, the Companys interest
  rate risk exposure was within this policy at June 30, 2007.Changes
in net interest income between the periods above reflect changes in the
composition of interest-earning assets and interest-bearing liabilities,
related interest rates, repricing frequencies, and the fixed or variable
characteristics of the interest-earning assets and interest-bearing
liabilities. Projections of income given by the model are not actual
predictions, but rather show the Companys relative interest rate risk. Actual
interest income may vary from model projections.

Item 4. Controls and
Procedures.

Evaluation of Disclosure Controls and
Procedures

The
Company has established disclosure controls and procedures to ensure that
material information relating to the Company is made known to the officers who
certify the Companys financial reports and to other members of senior
management and the Board of Directors and to ensure that information that is
required to be disclosed in reports Trinity files with the SEC is properly and
timely recorded, processed, summarized and reported. A review and evaluation
was performed by the Companys management, including Trinitys Chief Executive
Officer (the CEO) and Chief Financial Officer (the CFO), of the effectiveness
of the design and operation of the Companys disclosure controls and procedures
as of June 30, 2007, pursuant to Rule 13a-15(b) under the Securities Exchange
Act of 1934. Based upon and as of the date of that review and evaluation, the
CEO and CFO have concluded that the Companys disclosure controls and
procedures were effective as of June 30, 2007.

Changes in Internal Control over Financial
Reporting.

There
have been no changes to the Companys internal control over financial reporting
during the last fiscal quarter that have affected, or are reasonably likely to
affect, its internal control over financial reporting.

PART II  OTHER INFORMATION

Item 1. Legal Proceedings

Trinity,
the Bank, Title Guaranty, TCC Appraisal Services, TCC Advisors and TCC Funds
are not involved in any pending legal proceedings other than routine legal
proceedings occurring in the normal course of business except as otherwise
stated herein, which, in the opinion of management, in the aggregate, are
material to the Companys consolidated financial condition.

Item 1A. Risk Factors

In
addition to the other information in this Quarterly Report on Form 10-Q,
shareholders or prospective investors should carefully consider the risk
factors disclosed in Item 1A to Part I of Trinitys Form 10-K for the year
ended December 31, 2006 filed with the Securities and Exchange Commission on
March 16, 2007. There have been no material changes to the risk factors as
previously disclosed in Trinitys Form 10-K, except as otherwise provided below.

Our profitability is dependent
upon the health of the markets in which we operate. As stated in the Risk
Factors discussion in Trinitys Form 10-K for the year ended December 31, 2006,
the health of Los Alamos National Laboratory (Laboratory) is central to the
economic health of northern and central New Mexico. The main indicator of the
Laboratorys health is its budget. The Laboratorys 2008 fiscal year budget is
currently in conference in the United States Congress. The United States House of
Representatives passed a budget which would reportedly result in an approximate $300
million (13.6%) decrease from the Laboratorys current budget of $2.2 billion. The
United States Senate passed a budget without material reduction. A material decrease in
the Laboratorys budget may affect our customers business and financial interests,
adversely affect economic conditions in our market area, affect the ability of our
customers to repay their loans to us and generally affect our financial condition and
results of operations. The Companys management expects that the final budget will result
in a stable or minimally reduced Laboratory budget.

28

Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds

During
the second quarter of 2007, Trinity repurchased the following securities:

Period
    
    (a)
        
        Total number of shares
        purchased
    
    (b)
        Average price 
        paid per share
    
    (c)
        Total number of shares
        purchased as part of
        publicly announced plans
        or programs
    
    (d)
        Maximum approximate
        dollar value that may 
        yet be purchased under
        the plans or
        programsApril
        1-April 30, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    $
    May
        1-May 31, 2007
    
    
    15,403
    (1)
    
    
    27.69
    
    
    12,456
    (2)
    
    
    June
        1-June 30, 2007
    
    
    7,643
    
    
    
    29.00
    
    
    
    
    
    
    Total
    
    
    23,046
    
    
    $
    28.13
    
    
    12,456
    
    
    $
    (1)
In May 2007,
  four former employees exercised their put option on shares they owned in the
  Employee Stock Ownership Plan. Under this put option, Trinity has up to five
  years to repurchase the shares from the participants at the last appraised
  value of the stock. Trinity elected to repurchase these shares immediately
  from the plan participants. Total shares repurchased by Trinity under the put
  option were 2,947.(2)
On May 22,
  2007, Trinity announced that it would extend a stock repurchase plan that
  expired on March 31, 2007, allowing the repurchase of up to $353 thousand in
  outstanding shares of Trinitys common stock.Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of
Security Holders

At
the Annual Meeting of Stockholders held on May 24, 2007, William C. Enloe,
Deborah U. Johnson, Lewis A. Muir and Charles A. Slocomb were elected to serve
as Class I Directors of Trinity until the 2010 Annual Meeting. Continuing as
Class II Directors, with a term expiring in 2008, are: Jerry Kindsfather, Steve
W. Wells and Robert P. Worcester. Continuing as Class III Directors, with a
term expiring in 2009, are: Jeffrey F. Howell, Arthur B. Montoya, Jr. and
Stanley D. Primak. In addition, the shareholders ratified the appointment of
Moss Adams, LLP as the Companys independent registered public accounting firm
for the year ending December 31, 2007.

The
voting for each matter was as follows:

1.
Election of
  directors:NOMINEE

FOR

WITHHOLDWilliam C.
  Enloe

4,978,683

124,307Deborah U.
  Johnson

4,942,467

160,523Lewis A.
  Muir

4,939,465

163,525Charles A.
  Slocomb

4,942,991

159,9992.
Ratification of the appointment of Moss Adams, LLP as the Companys
  independent registered public accounting firm for the fiscal year ending
  December 31, 2007:For

Against

Abstain4,957,137

3,065

142,78829

Item 5. Other Information

None

Item 6. Exhibits

31.1
Certification of Chief Executive Officer Pursuant to
Rule
  13a-14(a)/15d-14(a)31.2
Certification of Chief Financial Officer Pursuant to
Rule
  13a-14(a)/15d-14(a)32.1
Certification of Chief Executive Officer Pursuant to
18 U.S.C.
  Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
Certification of Chief Financial Officer Pursuant to
18 U.S.C.
  Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.SIGNATURES

Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized.




TRINITY CAPITAL CORPORATIONDate: August
  9, 2007
By:

/s/ WILLIAM C. ENLOEWilliam C. EnloePresident and Chief Executive OfficerDate: August
  9, 2007
By:

/s/ DANIEL R. BARTHOLOMEWDaniel R. BartholomewChief Financial Officer30